Your task is to determine CDW’s current cost of equity. Since the company is not yet publicly traded1, you need to estimate its cost of equity from a set of comparable companies. Use ‘Hamada’s Equation’2 to adjust for the impact of corporate debt on a firm’s cost of equity. Assume that CDW’s target debt ratio3, D/(E+D), is similar to its ratio of ‘long-term liabilities’ to ‘total assets’, that is, $3.731B/$5.700B ≈ 65%.

[1 CDW’s Form S-1 filing: www.sec.gov/Archives/edgar/data/1402057/000119312513122411/d501911ds1.htm][2 Hamada’s equation is explained at http://en.wikipedia.org/wiki/Hamada's_equation][3 The target debt ratio, D/(E+D), is different from the target debt-to-equity ratio, D/E!]